Past research shows that during a crisis, managers of publicly-held firms often adopt a
“conservative” approach focused on protecting the existing core of their firms by decreasing
investments and hoarding precautionary cash. By doing so, managers decrease firms’ short-term
failure rates. However, the literature says little about ...
Past research shows that during a crisis, managers of publicly-held firms often adopt a
“conservative” approach focused on protecting the existing core of their firms by decreasing
investments and hoarding precautionary cash. By doing so, managers decrease firms’ short-term
failure rates. However, the literature says little about how managers of private, Small and
Medium-sized Enterprises (SMEs) (should) act during a crisis. To address this question, we draw
on the Conservation of Resources (COR) theory. Empirically, we use longitudinal data from
38,885 Belgian SMEs’ responses to the 2008-09 financial crisis. Consistent with our
expectations, we find that an “aggressive” approach focused on resource investment during the
crisis decreases SMEs’ failure rates for up to a decade after the crisis. Further, younger SMEs,
and especially those in industries with more growth opportunities, adopt aggressive approaches.
Overall, the results show that SMEs need to be aggressive during the crisis to ensure their longterm survival. Moreover, contrary to current depictions of younger SMEs as being vulnerable,
and especially so in crises, our evidence highlights that they are surprisingly aggressive when
being confronted with a crisis, relative to their older peers.
